The changing face of retail development

A shift in consumer values brings new brick-and-mortar opportunities to New York

The “retail apocalypse” that’s decimating brick-and-mortar shopping, hastening the inevitable shift to living entirely online, continues to dominate business conversations.

But for New York, there’s another side to the story.

The same changes in shopping habits and consumer preferences that have emptied shopping malls across the country are driving new brick-and-mortar retail opportunities in the city.

Paradoxically, the e-commerce boom has coincided with an increasing preference for personal, local and artisanal retail experiences. New York, with its high population density, ethnic diversity and pop-culture prestige, stands to reap benefits from the changes.

The pendulum swings

The new retail landscape favors concepts such as bowling, arcades and fitness, said Rohan Mehra, principal and de facto chief financial officer of The Prusik Group, a commercial development firm in Midtown. “The catch-all term would be ‘experiential retail,’” he explained.

At the same time, certain types of specialty shops are coming back from near extinction.

“There’s a proliferation of butcher shops,” Mehra said, giving an example. “For a while, nobody went to the butcher shop. You’d just go to the grocery store. But people are becoming a little disenchanted with factory farms. So that shift is allowing for retail experiences where the person you’re talking to has some passion for what they’re selling.”

Although this trend is associated with a willingness to spend more on a specialty product or experience, it’s boosting middle-market retailers as well, said Steven Soutendijk, executive managing director at Cushman & Wakefield Retail Services and co-chair of the Retail Committee of the Real Estate Board of New York.

“There is certainly a huge group that doesn’t shop at upmarket locations,” he said, “and discount retailers are booming. They’ll thrive as long as they can stay price-competitive with Amazon, and I think they can, because the days of Amazon beating everyone on price are over.”

Soutendijk cited grocery stores as the type of brick-and-mortar shopping experience that continues to matter to middle-market and more affluent consumers, despite the convenience of delivery options.

“At the end of the day, some people like picking up their own apples,” he said.

Legacy retailers personalize to survive

Brands whose main value proposition is convenient one-stop shopping have undoubtedly suffered from the dominance of Amazon and e-commerce. Retailers such as Sears and Barneys have closed stores and sought bankruptcy protection in drastic attempts to reorganize themselves.

But that doesn’t mean all chains are dead. Both Mehra and Soutendijk pointed to Target as an example of a legacy retailer that has held on in New York by adapting to the changes.

“Target is doing 16,000- to 20,000-square-foot stores and curating them for the neighborhoods they’re in,” Mehra said, noting the size of the typical Target is 145,000 square feet. “Their Lower East Side store is not the same as the one in the East Village. And by doing smaller stores they can do more of them, so it becomes as convenient as, if not more convenient than, shopping online.”

Soutendijk also observed a move toward smaller and more flexible spaces. “In general, retailers are doing more with less,” he said. “And if, like a lot of these brands, you have a robust e-commerce platform, you don’t need a large footprint and a huge stockroom.”

Nordstrom is attempting to localize its offerings with a new store on 57th Street. Although the space will be massive—363,000 square feet—the company has explicitly promised an inventory to match New Yorkers’ preferences, as opposed to catering to tourists. It is opening dedicated customer-service locations in the West Village and the Upper East Side, mimicking the way online retailers have been entering the physical space with stripped-down pickup locations.

Developers adapt

Consumers’ shifting preferences mean that developers must pay attention to the mix of vendors they engage, Mehra said.

In 2013 his firm became the retail development partner in the consortium Delancey Street Associates, and it was engaged to design retail concepts, structure deals and negotiate the leases at Essex Crossing in the Lower East Side. The 1.65-million-square-foot project is anchored by the relocated Essex Market, a historic public food market.

Mehra and his colleagues studied the community in the Lower East Side in detail, and they ultimately came up with a three-block market, called Market Line, designed to “celebrate the diversity of the Lower East Side, the gateway to New York and America” and at the same time fill commercial gaps in the community.

The small businesses that occupy the space are largely immigrant-, minority- or female-owned businesses, and roughly half are based in the Lower East Side. Mehra said they made sure that the ethnic makeup of the vendors would closely reflect that of the community. When Essex Market reopened in mid-May, it earned positive reviews from many legacy vendors, longtime customers and the local media.

That seems to be the opportunity and challenge in New York retail right now: to develop inspiring, experiential spaces that meet consumers where they live.

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